Mogul's arrest may cause a power shift in Kremlin

Moderate holdover's offer to resign could clear way for use of harsher tactics

October 30, 2003|By Douglas Birch | Douglas Birch,SUN FOREIGN STAFF

MOSCOW - The Kremlin's criminal investigation of a Russian oil company and its chief executive has touched off a shake-up among advisers to President Vladimir V. Putin and may mark the victory of former secret police officials over a moderate faction within Putin's administration.

The charges against executives of Yukos Oil Co. seemed to take on greater importance when the Russian press and London's Financial Times reported that Putin's chief of staff, Aleksandr Voloshin, one of the last holdovers from the era of President Boris N. Yeltsin, had submitted his resignation in protest.

If Putin accepts the resignation, it would mark the president's tighter embrace of the siloviki, the former intelligence officials whom he appointed to key positions in the Kremlin. They have long been at odds with holdovers from Yeltsin's time, who are considered part of a more liberal political movement.

"The era of democracy is coming to an end," said Olga V. Kryshtanovskaya, a prominent sociologist who studies Russia's business and government elite. "Russia has embarked on the road of authoritarianism."

Putin is a former lieutenant colonel in the KGB, the Soviet Union's secret police agency, and the siloviki are said to be led by two presidential deputies: Viktor P. Ivanov, one of Putin's former colleagues in the St. Petersburg KGB; and Igor I. Sechin, who worked as an intelligence agent in Mozambique.

The investigation of the Yukos, meanwhile, expanded yesterday, as prosecutors asked a court to lift the legislative immunity of one of the company's largest shareholders, Vasily Shakhnovsky.

On Monday, 10 days after being charged with tax evasion, Shakhnovsky was elected to Russia's senate by the governing council of the Evenk Autonomous District - a vast section of northern Siberia with only 20,000 inhabitants.

Russian media reported that prosecutors have also been dispatched to Evenk to investigate the council that elected Shakhnovsky.

Yukos' troubles began after its chief executive, Mikhail B. Khodorkovsky, showed an interest in politics by donating money to opposition parties and hinting that he might run for president. He also engaged in a sharp public exchange with Putin over allegations of government corruption.

Khodorkovsky, Russia's richest businessman, was arrested last week on charges of tax evasion and fraud related to the sale of state-owned industries in the 1990s. His arrest led to sharp declines in Russia's stock market and currency.

Vladimir Yudin, a Putin ally in Russia's parliament, pushed for the investigation that led in July to the first arrest of a major Yukos figure, billionaire investor Platon Lebedev. The Russian press reports that Yudin is now demanding that prosecutors investigate the privatization of Sibneft, an oil company that recently merged with Yukos. Investors bought Sibneft from the government in August 1995 for $100.3 million; before its merger with Yukos, the company was valued at about $12 billion.

Putin has publicly vowed not to undo the sales of state assets that occurred during the mid-1990s, when the government sold off properties that vastly enriched a small number of businessmen who were dubbed oligarchs. But the president appears determined to restore the Kremlin's political and economic dominance.

Putin said Monday that the investigation of Yukos and its major shareholders was by wholly independent prosecutors working to expose and punish criminal conduct, not a Kremlin-orchestrated crusade against a political foe.

Many Russians agree that there are grounds for pursuing criminal investigations into the sale of state assets in the 1990s. But human rights campaigners say the oligarchs have been an important counterbalance to the power of the Russian bureaucracy and the Kremlin.

The Kremlin's critics add that while the businessmen involved in the questionable privatization deals are being investigated, the government officials who approved the deals are not.

"They gave birth to this `monster,' and now they are trying to kill it with their own hands," Nikolai V. Volkov, a former prosecutor whose investigation of the oligarch Boris A. Berezovsky was derailed by superiors, said in an interview. "But the guilt of the parents is still there."

Sergei A. Kovalyov, a member of parliament and prominent former dissident, who spent 12 years in the Soviet gulag, said in an interview that the arrest of Khodorkovsky was a blatant case of selective enforcement.

"Why is the whole Cabinet under Yeltsin not in jail?" he said. "Those in power play by the rules of the mafia, not by the rules of the law."

Kryshtanovskaya, the sociologist, said the Kremlin might seek to increase its control over Russia's large, privately owned corporations, especially those in the oil and gas, minerals and timber industries. This could involve simply raising taxes - something the oligarchs have successfully resisted until now - to re-establishing partial state ownership of the largest companies.

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